Chapter 12, Problem 1PA

(a)

Summary Introduction

Interpretation: Total annual logistics cost needs to be calculated based on the given data.

Concept Introduction: Total supply chain cost is a vital measure of performance of any supply chain and it includes all related costs incurred in the supply chain.

Explanation of Solution

Given Information:

Alpha Medical Manufacturing (AMM) outsourcing information for a surgical screw
Contract Manufacturer (Tier 1 supplier)	Price per unit @ Q = 10,000 (C)	Price per unit @ Q = 20,000 (C)	Tariff cost (Ti) per unit	Transport mode cost (Tm) per unit	Order Costs (Co)	Cost to store one unit per year (Ch)	Order Lead Time in Days
Xiajing Supplier	$ 1.10	$0.92	$0.2	$0.35	$ 655	$ 1.35	180
Boston Medical Supplier	$ 1.25	$1.15	$0.00	$0.15	$ 260	$ 1.00	90
Werkzeug Supplier	$ 1.35	$1.00	$0.10	$0.20	$ 350	$ 1.05	120

Annual Demand (D) = 20,000 units

Working days − 365 days in a year

Total Annual Logistic cost can be calculated using following formula:

Total Annual Logistic Cost (TALC) = Total Procurement cost + Total Tariff cost + Total Transportation cost + Total Order Cycle inventory cost + Total Pipeline inventory cost

  

  

  

  

  

Where,

D = Annual Demand

Q = Order Quantity

C_o = Ordering Cost

C_h= Inventory holding cost

d = Average Daily demand

L = Lead time

For Order quantity of 10,000 units

Alpha Medical Manufacturing (AMM) outsourcing information for a surgical screw
Contract Manufacturer (Tier 1 supplier)	Total Procurement Cost	Total Tariff Cost ($)	Total Transport Cost ($)	Order Cycle Inventory Cost ($)	Pipeline Inventory Cost ($)	Total Annual Logistic Cost ($)
Xiajing Supplier	22,000	4,000	7,000	1,310	13,315.06	47625.06
Boston Medical Supplier	25,000	0	3,000	520	4,931.5	33451.5
Werkzeug Supplier	27,000	2,000	4,000	700	69,041.09	102741.09

For Order quantity of 20,000 units

Alpha Medical Manufacturing (AMM) outsourcing information for a surgical screw
Contract Manufacturer (Tier 1 supplier)	Total Procurement Cost	Total Tariff Cost ($)	Total Transport Cost ($)	Order Cycle Inventory Cost ($)	Pipeline Inventory Cost ($)	Total Annual Logistic Cost ($)
Xiajing Supplier	22,000	4,000	7,000	$ 655	13,315.06	46970.06
Boston Medical Supplier	25,000	0	3,000	$ 260	4,931.5	33,191.5
Werkzeug Supplier	27,000	2,000	4,000	$ 350	69,041.09	102,391.09

Alpha Medical Manufacturing (AMM) outsourcing information for a surgical screw
Contract Manufacturer (Tier 1 supplier)	Total Procurement Cost	Total Tariff Cost ($)	Total Transport Cost ($)	Order Cycle Inventory Cost ($)	Pipeline Inventory Cost ($)	Total Annual Logistic Cost ($)
Xiajing Supplier	22,000	4,000	7,000	$ 655	13,315.06	46970.06
Boston Medical Supplier	25,000	0	3,000	$ 260	4,931.5	33,191.5
Werkzeug Supplier	27,000	2,000	4,000	$ 350	69,041.09	102,391.09

Total Annual Logistics Cost of each supplier at different order quantity will be

Total Annual Logistic Cost	Order Quantity (Q)
	10,000 units	20,000 units
Xiajing Supplier	$ 47,625.06	$ 46,970.06
Boston Medical Supplier	$ 33,451.5	$ 33,191.5
Werkzeug Supplier	$ 102,741.09	$ 102,391.09

(b)

Summary Introduction

Interpretation: Recommendation needs to be given based on the given data.

Concept Introduction: Total supply chain cost is a vital measure of performance of any supply chain and it includes all related costs incurred in the supply chain.

Explanation of Solution

As per the data calculated in above part,

Boston Medical Supplier should be recommended as it has low total annual logistic cost at both order quantities.

(c)

Summary Introduction

Interpretation: Recommendation needs to be given based on the given data.

Concept Introduction: Total supply chain cost is a vital measure of performance of any supply chain and it includes all related costs incurred in the supply chain.

Explanation of Solution

Company should also look for quality parameters that will affect product sales and rate the vendors accordingly before making the final supplier decision.

Company should also consider the management oversight cost and calculate the overall supply chain cost at economic order quantity in order to make a balanced supply chain decision.